Merrill Lynch & Co. - AGG Exposes Deficiencies of Trustee Seeking $500 Million

Challenge

AGG represented Merrill Lynch & Co. (“Merrill Lynch”), a leading global investment bank, in a Georgia state court action brought by the bankruptcy trustee of a failed public company in the floor covering industry. The trustee claimed damages in excess of $500 million based on Merrill Lynch’s role as one of the company’s investment banks prior to its demise. A series of significant corporate events had preceded the company’s failure, including stock offerings and a subordinated notes offering, the acquisition (and subsequent divestiture) of a highly profitable specialty manufacturing business, and the acquisition of a national chain of retail stores. The trustee’s claims were based in part on the novel legal theory of deepening insolvency. Other defendants in the case included a global CPA firm, another investment bank, and several of the former officers and directors of the defunct company.

Approach

AGG developed a defensive strategy, employing certain provisions of Georgia’s tort reform statutes, designed to isolate and remove Merrill Lynch as a causal factor in the business reverses experienced by the bankrupt company, while maintaining a non-adversarial posture in relation to the other defendants. AGG also developed and implemented a discovery plan and tracking process, which allowed it to compile a compelling record of discovery failures and abuses on the part of the trustee. Finally, AGG relied upon fee-shifting provisions in Georgia’s tort statutes to expose the trustee to the risk of liability for Merrill Lynch’s legal fees upon the granting of Merrill Lynch’s summary judgment motions.

Result

AGG obtained a large discovery sanctions award against the trustee and his attorneys, while concurrently prosecuting a motion to exclude certain of the trustee’s expert witnesses on Daubert grounds and motions for summary judgment aimed at the entire dismissal of the trustee’s claims against Merrill Lynch. In a mediation conducted during the pendency of Merrill Lynch’s Daubert and summary judgment motions, AGG assisted Merrill Lynch in obtaining a favorable negotiated settlement of the trustee’s claims.